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Strategic delegation, quality competition, and new product profitability

Hyun Shin (Graduate School of International Studies, Ewha Womans University, Seoul, South Korea)
Jongtae Shin (Department of Management, Long Island University, Brookville, New York, USA)
Shijin Yoo (Department of Marketing, Korea University, Seoul, South Korea)
Joon Song (Department of Economics, SungKyunKwan University, Seoul, South Korea)
Alex Kim (Department of Marketing and International Business, Long Island University, Brookville, New York, USA)

Management Decision

ISSN: 0025-1747

Article publication date: 20 April 2015

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Abstract

Purpose

The purpose of this paper is to present a new perspective on the marketing-R & D interface by modelling firms that develop new products in a duopolistic market.

Design/methodology/approach

By using a game-theoretic modelling approach, this study examines strategic delegation, through which the marketing and R & D managers of each firm are given authority over pricing and new products’ quality levels.

Findings

Interestingly, the study finds that the case where two managers with conflicting incentives negotiate (the horizontal coordination case) might produce a better financial outcome than when the managers’ decisions are perfectly coordinated by a profit-maximizing CEO (the vertical control case). In addition, the study identifies several conditions that guarantee horizontal coordination’s generation of higher profit, such as high (or low) sensitivity to the quality (or price) of a new product. The paper further shows that two competing firms may select horizontal coordination as a Nash equilibrium.

Practical implications

These findings provide new insights into the role of marketing-R & D interaction under strategic delegation, which may allow rival firms to “spend smart” on R & D, avoid excessive (and unnecessary) quality competition, and thus enhance the profitability of new products. Such insights would be useful for any firms under budget constraints.

Originality/value

To the authors’ knowledge, this paper represents the first attempt to analyze how delegation interacts with the conflicting incentives of marketing and R & D managers, which in turn affects the quality investment decisions, competitive intensity, and, ultimately, the financial outcomes of new products developed competing firms.

Keywords

Acknowledgements

The authors thank the editor and two anonymous reviewers for their invaluable comments and suggestions. The third author is grateful to the KUBS Faculty Research Grant. The fourth author gratefully acknowledges use of the facilities of Sungkyunkwan Institute of Economic Research, funded by the Korean Government (NRF-2014S1A5B8060964).

Citation

Shin, H., Shin, J., Yoo, S., Song, J. and Kim, A. (2015), "Strategic delegation, quality competition, and new product profitability", Management Decision, Vol. 53 No. 3, pp. 713-729. https://doi.org/10.1108/MD-05-2014-0318

Publisher

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Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited

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